Date:01/05/2004 URL: http://www.thehindubusinessline.com/2004/05/01/stories/2004050102310100.htm

Back Urban coop bank directors nudge Finance Ministry to lift loan ban

Sarbajeet K. Sen

New Delhi , April 30

IT may seem ironic that at a time when most banks are chasing potential customers with attractive loan offers, a section of senior bank functionaries is desperately pleading for freedom to access loans from their own banks.

The aggrieved segment, directors of Urban Cooperative Banks (UCBs), are seeking the lifting of the ban imposed on them from accessing loans from their own banks. For starters, even a partial relief would do, they say.

After several attempts at reasoning out with Reserve Bank of India, the UCBs have now approached the Ministry of Finance after the RBI had told UCB representatives that amendments to its ban orders could be issued only on express government directives.

The ban was imposed by the RBI on the entire UCB sector following recommendations by the Joint Parliamentary Committee (JPC) on the stock scam. The scam revealed the involvement of a few UCBs in defrauding the system. The "total ban on all types of loans" applies not only to the directors but also to their relatives and entities in which they have interest.

The co-operative banks had asked the RBI to make a beginning by removing the ban on loans against their own deposits. "It is against all canons of justice to deny loans against one's own deposit," Mr D. Krishna, Chief Executive, National Federation of UCBs and Credit Societies (NAFCUB), said.

He said a communication explaining the UCB viewpoint has now been sent to the Banking Secretary, Mr N.S. Sisodia.

The federation pointed out that directors of other scheduled commercial banks or other co-operative banks do not have such restrictions imposed on them. "Directors of commercial banks who do not have much involvement in the bank are not denied the facility of loans against deposits, LIC (policy), National Savings Certificates. Moreover, till date, except urban cooperative banks, this kind of ban has not been imposed on other cooperative banks," it said.

It also said that the RBI had erroneously incorporated subtle changes in the JPC order while imposing the ban, thereby giving a much wider connotation to the Committee's recommendation. The JPC had said that "full ban in granting of loans and advances to the directors and their relatives in concerns which they are interested needs to be imposed." However, the RBI had replaced the word `in' by `or'. JPC's original wording would have allowed directors to access loans in their own names, the federation said.

Mr Krishna said UCBs are particularly concerned over accessing loans from their own banks since they have heavy involvement in the entities and often have large deposits in their own names and that of their relatives.